India’s state-owned banks remain more resilient than private banks
Kotak Institutional Equities has published an analysis of the Indian financial sector. The report focuses on the credit sector, which is facing challenges. In the third quarter of FY2025, the growth rate in this segment declined to 12%. At the same time, India’s state-owned banks are growing faster than private banks.
The Reserve Bank of India has recorded a decline in lending, particularly in the large loan segment of Rs1 million and above. Experts attribute this to a decrease in the activity of financial companies in the non-banking sector.
Analysts note a drop in household activity. The local population is reluctant to borrow, which negatively impacts the sector’s development. As a result, demand for loans, overdrafts, and other cash-generating banking products has declined.
Sector challenges
Despite the sector’s slowdown, financial institutions are still in a stable position. Their asset portfolios allow them to remain stable, unlike in previous business cycles.
Local banks offer a variety of lending options. They offer flexible terms depending on geography, cost of borrowing, sector and other factors. The situation is evolving as follows:
– there is still a high percentage of unsecured loans in the market;
– housing finance shows a moderate growth rate;
– lending to micro, small and medium enterprises (MSMEs) is the key sector;
– banks are improving their underwriting and disbursement processes to reduce non-performing loans.
At the same time, analysts note low demand for services as companies optimise their investments. This dynamic is seen as a limiting factor for the sector.
The situation regarding asset quality remains stable. It cannot be seen as a key factor slowing down lending dynamics. According to the analysis, banks are controlling fluctuations that could affect the quality of their portfolios.
Private banks and financial institutions
Microfinance organisations are less stable than banks. However, this situation does not dramatically affect the overall bank portfolios. Strict lending rules support the sector’s stability. These rules apply mainly to unsecured loans, which are associated with risks.
Experts note difficulties with deposits at private banks. Weak growth negatively impacts lending opportunities. To improve the situation, banks need to review financing pricing. However, maintaining margins leads to lower demand from borrowers. In addition, high interest rates discourage consumers.
These factors limit the potential for broad credit expansion in India. Nevertheless, strong asset quality is helping to mitigate some of the sector’s difficulties. Credit supply remains a key challenge, but it is too early to discuss high default risks at this stage.
